BaFin published an interpretative decision on delineation of financial reinsurance from traditional reinsurance in the non-life sector. Under Article 208 (2), second sentence, of the Delegated Regulation (EU) 2015/35, non-life insurance undertakings may not take into account financial reinsurance business or similar arrangements where the effective risk transfer is similar to a financial reinsurance transaction, provided that the volume measures for the premium and provision risk determine or calculate appropriate company-specific parameters. They must, therefore, distinguish financial reinsurance from traditional reinsurance. The interpretative decision is to be applied to all insurance companies domiciled in Germany and to branches of third-country insurance undertakings operating in the non-life insurance business.
In the area of non-life insurance, the expected loss of the reinsurer (Expected Reinsurer's Deficit or ERD) is used as a measure of risk transfer when differentiating financial reinsurance from inadequate risk transfer. A sufficient transfer of risk exists if the absolute amount of the expected loss of the reinsurer amounts to at least 1% of the expected premium. It makes sense to use ERD for the distinction between financial reinsurance and traditional reinsurance. In any case, in the field of non-life insurance, the Federal Agency assumes traditional reinsurance if the absolute amount of the expected loss of the reinsurer amounts to 2.5 percent or more of the expected premium. However, the provisions on the demarcation of financial reinsurance from inadequate risk transfer remain unaffected by the interpretative decision.
Related Links (in German)
Keywords: Europe, Germany, Insurance, Reinsurance, Financial Reinsurance, Traditional Reinsurance, Non-Life Insurance, Risk Transfer, Solvency II, BaFin
Previous ArticleIMF Examines Regulatory Issues Stemming from Rise of Digital Money
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.